In Crashes, All Correlations Go to 1

Happy Thursday!

I hope you’re well and thriving.

After my fasting piece yesterday, I checked the markets, and they were drenched in red.

The VIX (volatility index) was up 24%.  Yikes!

Let’s chat about the renewed volatility in the market, its effect on crypto, and what you can do before the reckoning.

Red as in Rose, or Red as in Blood?

Andy and I were working yesterday on Finlingo, and I wanted to build a market scoreboard for the online course that we’re about to produce.

I went to Google Finance; by the way, I’m in love with Google Sheets and that googlefinance() command.

Then I noticed that everything was blood red.

Markets were down 4% across the board. Palantir was down 8%. It was just a gruesome day. 

Of course, yesterday, the market stabilized a bit, and we’re pretty much flat.

But the day before was terrible.

The VIX was up about 25%, which is not good, no matter how you look at it.

And crypto got crushed again.

This leads me back to my hypothesis that far too much free money is floating around in the market that has blown out valuations beyond all reasonable measures compared to their earnings or growth potential.

This has allowed rich people who have profited from these paper gains to borrow against those paper gains.  This inflates asset classes that have no business being so inflated.

To-wit: Bitcoin is trading below $43,000.  Ethereum is down below $3,000 at the time of writing.

As you know, I’m a crypto convert, and I do think there is immense value in both Bitcoin and Ethereum, though I am a bigger fan of Ethereum.

But I don’t think they’re going to hedge your downside when the end comes.

The reason why I don’t think that’s the case is that when rich guys are allowed to take out margin loans, or more formally Lombard loans, against the value of their portfolios, they’re using that money to goose the crypto markets.

Crypto is far from the only market this is happening in.

It’s happening in the real estate market.

According to The Wall Street Journal, values in Courchevel have gone through the roof, along with other prime areas. And that’s because rich people hang out in prime locations.

You can get a lovely 1,422 sq ft home in Courchevel for $5.22 million. It’s ludicrous.

This is a consequence of inflation.

But wait, there’s more!

The stock markets are inflated, as we’ve seen over the past 13 years.

Same thing in the bond market, which to me is ridiculously overvalued.

Euro junk bond yields are below the inflation rate.  Seriously, WTF?

And the commodities markets, of course, have recovered almost to prior levels. Oil is now above $80.

I look forward to all the oil sheiks getting uppity quite shortly.

So I still encourage you to dip that toe into crypto.

But what I don’t want you to do is stick everything in crypto and expect that to remain elevated once the reckoning comes.

I think crypto is as fraught with danger as any other asset class.

Since we’re all fiat now, we’ve got this problem: all fiat economies run fractional reserve banking on top of it and margin lending on top of them both.

There’s nowhere safe to be.

That’s the bottom line, except maybe a couple of places.

Arable land

I can’t wait to buy my house in Italy, because what we’re looking for is a lovely little house with a bit of land where I could grow my vegetables and keep some chickens.

Do I think that will provide all of my family’s nutritional needs? No, of course not.

But suppose you have a bunch of chickens running around laying healthy eggs, grown good fruit and vegetables, and live away from the cities. In that case, you’re going to be better positioned than someone who’s living in a one-bedroom apartment in the middle of the Square Mile in London or Manhattan.

So arable land, I think, is a great bet.

Guess who the largest owner of farmland in the United States is?

You guessed it: Bill Gates.

It’s funny how these tech billionaires decide, “Well, I need to buy land now.”

After all, shouldn’t he be investing in the latest technologies instead of trying to stab us with a needle and grow our food for us?

Quite frankly, I can’t think of anything more horrifying than Bill Gates trying to grow food for us.

Anyway, I’m a big fan of investing in land that you grow stuff on.

Not just real estate, although I am reading Grant Cardone’s book on real estate right now, which is a short read; I just need to finish it up.

I love his plan about commercial real estate. I think it’s sound.

But I think you have time for commercial real estate.

Commodities in general

I like other commodities, not just agricultural.

With the non-transitory inflation that we’re going to see, energy is a good go.  The oil price trend is evidence of that.

Rare earths are another great idea.  Check out the ETFs you can invest in for them.

On top of the supply chain issues, we have supply issues there.  And also geopolitical issues, as China accounts for 58% of worldwide rare earth production.

Honestly, I’m still not a fan of gold and silver, and precious metals have massively underperformed in this recent rally.

I know my erstwhile colleague Jim Rickards is still calling for $15,000/oz. in gold.

I just don’t see it anytime soon.

Yes, we had some recovery in the price action yesterday, but it’s only a slight recovery.

Gold is in a downtrend right now during inflationary times. It’s so counterintuitive it’s ridiculous, but that’s the way things are right now.

So my advice to you is to keep dipping that toe in crypto.

But if you’re looking for not just investment but also utility, arable land and commodities are the way to go right now.

Good hunting!

All the best,

Sean

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